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This July the world marks the 70 years anniversary of Bretton Woods Conference, formally known as the United Nations Monetary and Financial Conference. It was the gathering of 730 delegates from all 44 Allied nations, including the USSR, at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, to regulate the international monetary and financial order after the conclusion of World War II.

The decisions taken at the conference laid down the foundations of the global financial system. The system used gold and dollar as standards, Washington was obliged to exchange the yellow metal for greenbacks. In the 1970s the Bretton Woods system became a thing of the past in favor of the Jamaica system based on dollar banknotes. The dollar was backed up by black gold and the system was often called an oil-dollar order.

No matter that, the Bretton Woods has not completely faded. The IMF was developed as a permanent international body. The summary of agreements states, «The nations should consult and agree on international monetary changes which affect each other. They should outlaw practices which are agreed to be harmful to world prosperity, and they should assist each other to overcome short-term exchange difficulties». The International Bank for Reconstruction and Development (IBRD) was created to speed up post-war reconstruction, to aid political stability, and to foster peace. This was to be fulfilled through the establishment of programs for reconstruction and development. Since a long time the banks have been facing great difficulties. The International Monetary Fund is going through crisis too. As 70 years since Bretton Woods have passed, a heavy blow was delivered against international financial institutions. The attack came from the resort city of Fortaleza in Brazil.

Although the theme of the summit was “social inclusion”, at the top of the agenda is the creation of two new entities controlled entirely by the five BRICS members. The Bank is setup to foster greater financial and development cooperation among the five emerging markets. It would be headquartered in Shanghai, China and the first chief executive will come from India. The New Development Bank (NDB) will fund development projects independent of the US-controlled World Bank, and the Contingent Reserve Arrangement (CRA) will provide relief from the austere conditions and requirements of the IMF. The decision making process had been in works for a long time. The controversial issues had been settled before the summit. Everything had been prepared in advance, so Fortaleza was the place where the ceremony took place. Media often call the new institutions in a more simple way – the Bank of BRICS and the Reserve Currency Fund of BRICS.

To be initially capitalized at $50 billion ($10 billion being contributed by each of the five countries), the Bank will have an authorized capital of $100 billion, and cater to the infrastructure and development funding needs of the five countries. It’s open for all United Nations members but the BRICS share is to never get lower than 55%. The control stock will always belong to the five founding members. The formation of authorized is to take a few years. The capitalized and contributed shares will be equal with any BRICS member enjoying equal rights as a member of board.

Russia, China, India, Brazil and South Africa will provide 10 representatives to make up the bulk of professional staff to make the Bank function. All the decisions will be taken by the special majority making up four out of five BRICS members or two thirds (in case the membership will be extended). The Bank may become operational in 2015 to fund the joint projects of the BRICS group members. One of the first projects to be funded may be GLONASS – the Russia-produced global navigational system. The stationing GLONASS sites on the territories of BRICS members will make the system more competitive and reliable. BRICS has a unique advantage - the members are located on the territories of four continents.

Now about the reserve pool. The idea was first brought up at the June 2012 BRICS summit in Los Cabos. The BRICS will also set up a $100 billion (73.5 billion euros) joint US dollar currency reserve pool called the Contingent Reserve Arrangement (CRA), in order to provide emergency cash to BRICS countries faced with short-term currency crises or balance-of-payments problems, as Russian President Putin told reporters in Brazil. The CRA's mission parallels that of the IMF. It will provide emergency funds to governments faced with a sudden shortage of hard currency - especially of US dollars, the dominant currency in global trade and finance. Developing-country financial crises can occur when international investors suddenly pull large amounts of hard currency out of a country because of worries over its banking system's solvency, a change in interest rates, or some other financial factor. Crises can also result from a sudden drop in the price of a developing country's main export. For example, a drop in the price of oil or copper can lead to balance-of-payments problems. Vladimir Putin said he is concerned over the policies of Western states which don’t stand out for long-term vision or thorough assessment.

The CRA and the IMF may have a lot of things in common, but there are differences. The International Monetary Fund is an international financial organization with its own capital, Charter and HQ. The CRA is just a mechanism with no headquarters at this stage. The $100 billion BRICS contingency reserve arrangement (CRA) will be raised from the member countries’ central bank reserves while capital for the group’s development bank will come from national budgets. The reserve fund is being established in order to promptly react to the situation on currency markets. Central banks will be able to conduct swap operations if necessary. It is designed to cushion short-term liquidity pressure and promote financial stability. The individual commitments of the five nations to the BRICS CRA will be as follows: China – $41 billion; Brazil, India, and Russia – $18 billion each; and South Africa – $5 billion. The credit decision will be based on national coefficient or a multiplier. In case of China it could be 0, 5. It means if needed China may get not $41 billion but a half. In case of South Africa the multiplier is 2. In other cases it is 1. The CRA assets will be collected from gold-reserves of the member-nations. It’s nothing more than just a framework agreement that was signed in Brazil. The agreement to be put in practice will be concluded later between the countries’ central banks.

Assessing the decisions taken in Brazil, some world media outlets compare the event with the Bretton Woods conference in 1944. Perhaps there is some exaggeration here. It’s hard to say how consistent the group members will be complying with the decisions taken in Brazil. The West’s response is not known as yet. It could be positive or negative, even aggressive. We believe the creation of Contingent Reserve Arrangement was another signal to the West, especially to Washington. It says the time has come to launch the process of reforming the International Monetary Fund. As is known, On December 15, 2010, the Board of Governors, the Fund's highest decision-making body, completed the 14th General Review of Quotas which envisioned double quotas from approximately SDR 238.5 billion to approximately SDR 477 billion (close to US$737 billion at current exchange rates), shift more than 6 percent of quota shares from over-represented to under-represented member countries, shift more than 6 percent of quota shares to dynamic emerging market and developing countries (EMDCs), significantly realign quota shares. A comprehensive review of the current quota formula was completed in January 2013, when the Executive Board submitted its report to the Board of Governors. The outcome of this review will form a basis for the Executive Board to agree on a new quota formula as part of the 15th Review. The Board of Governors has set a deadline of January 2015 for the completion of the 15th General Review of Quotas. All the countries have already ratified the provisions of the 14th Review except the United States. Washington blocked the process of IMF reform to avoid the loss on control exercised by the United States over the Fund. As of now, the United States holds the 15% blocking package, the US capital share is about 17%. Many American congressmen ask why we should change the 14th Review if it may result in out loss of control over the Fund.

Washington will have to transfer over 60 billion dollars to the International Monetary Fund. President Obama is trying to push the ratification through because without it the Fund will not be able to provide funds for Ukraine. At the same time the ratification will strengthen BRICS and their allies in the International Monetary Fund. Everybody understands well there is a link between the issue of IMF reform and Ukraine, though American politicians have different views on what the implications are going to be like.

The Fortaleza decision to create the BRICS CRA is letting Washington know – go on, ratify the 14th Review of Quotas otherwise will swing over to an alternative currency fund with the participation of many willing besides BRICS. Argentina, for instance.

Ahead of Modi visit, US Senate grills Obama official for 'strategic uncertainty' over India - Hindustan Times

US President Barack Obama’s India policy, or the lack of it, came under withering attack at a Senate hearing on Wednesday in the run up to Prime Minister Narendra Modi's upcoming visit to Washington.

US President Barack Obama’s India policy, or the lack of it, came under withering attack at a Senate hearing on Wednesday in the run-up to Prime Minister Narendra ...

Powerful Republican Senator John McCain, who recently met Modi and his senior cabinet colleagues in New Delhi, led the charge asking for the administration's strategy.
At his meeting with Modi, Senator McCain said, the Prime Minister told him he wanted to focus “our partnership” on an “ambitious strategic agenda”.
“Would you tend to agree with that,” he asked assistant secretary of state Nisha Biswal, who was also in India recently, the main administration official at the hearing.
Biswal said that was the impression she got at the meeting she attended between Modi and the US deputy secretary of state William Burns.

“What does the administration think the elements of that agenda might be,” the Senator asked her.
“We think that we have a very strong opportunity in terms of security cooperation and defence partnership …,” Biswal offered only to be cut off by McCain.
“What, specifically, would that be?” he asked.
Biswal said Modi told them “defence manufacturing was a key area that India would like to pursue”. She went on to speak about India raising the FDI cap in defence.
The Senator cut in again, but showing no sign of irritation or impatience at not getting the answer he was seeking: “Not exactly sure that that is a strategic agenda.”
Biswal, who is directly in charge of relations with India as head of the South Asia and Central Asia desk at state department, launched into a litany of ongoing engagements.
“Greater cooperation in defence partnership, in the security partnership … strategic objectives in region — East Asia, maritime security … South and Central Asia …”
“We certainly look to increase our relationship with respect to how to work together to address problems in the region and across the world …” she added.

McCain paused for a bit after Biswal was through.
“Strategic agenda,” he resumed, “what is our overall strategy?”
The same question was now posed differently.
Biswal tried again. “Senator as you noted … we think that as India grows, as India prospers and as India increases its capabilities … that India as a partner in the region …”
McCain cut in yet again.
“No … go ahead but you still haven’t (got on to) the strategy.”
He now gave up: “Strategy, as I understand it, is specific measures to ensure certain aspects of security,” he said again, patiently, without showing any signs of his famous temper.
“You haven’t mentioned China, you haven’t mentioned Japan. You haven’t mentioned … (the) strategy and the threats we (it wasn’t clear here if he meant “we” as in the US or “we” as India and the US) are facing and the challenges we are facing.”

Unconvinced by Biswal’s follow-up, the Senator said, “I look forward to the articulation of that strategy.”
And he moved on to the next witness, and a new subject.
Former US ambassador to India, Frank Wisner picked up from where McCain left off, when he took his seat as part of the non-government panel following Biswal’s.
“Since 2010 (President Obama’s India trip), the relationship has been on hold,” said the former ambassador, who is now a general-purpose India-hand in this town.
“If anything,” he added, “it has atrophied.”
It is a serious charge from a diplomat trusted by this administration enough to be sent to convince Hosni Mubarak to step down.
Both McCain and Wisner were making the same point: the India-US relationship had run out of steam, ideas and handed over to bureaucrats to quibble over small things.
Richard Rossow, newly appointed head of the India chair at the Center for Strategic and International Studies, a DC think-tank, added another dimension to the stalled relationship.
Since the exit of deputy defence secretary Ash Carter, he said there was no one at the cabinet level looking after the relationship with India on a daily basis.
Others have argued that the lack of leadership on relations with India goes back further — the White House lost interest soon after US companies lost the MMRCA deal

July 15, 2014

The BRICS Development bank, an idea which was conceived in Delhi in 2012 and approved in Durban last year, is to be set up with an initial corpus of $50 billion, with scope for expansion up to $100 billion.

I think now India must propose BRICS Tel, making communication cheap between Brics nations by forming a telecom consortium. People in BRICS nations should be able to have cheaper communication when we expect a greater trade.

I request policy makers in India to come up with a plan and propose this to BRICS nations.

(Reuters) - Leaders of the BRICS emerging market nations launched a $100 billion development bank and a currency reserve pool on Tuesday in their first concrete step toward reshaping the Western-dominated international financial system.

The bank aimed at funding infrastructure projects in developing nations will be based in Shanghai and India will preside over its operations for the first five years, followed by Brazil and then Russia, leaders of the five-country group announced at a summit.

They also set up a $100 billion currency reserves pool to help countries forestall short-term liquidity pressures.

The long-awaited bank is the first major achievement of the BRICS countries - Brazil, Russia, India, China and South Africa - since they got together in 2009 to press for a bigger say in the global financial order created by Western powers after World War Two and centered on the International Monetary Fund and the World Bank.

The BRICS were prompted to seek coordinated action following an exodus of capital from emerging markets last year, triggered by the scaling back of U.S. monetary stimulus. The new bank reflects the growing influence of the BRICS, which account for almost half the world's population and about one-fifth of global economic output. The bank will begin with a subscribed capital of $50 billion divided equally between its five founders, with an initial total of $10 billion in cash put in over seven years and $40 billion in guarantees. It is scheduled to start lending in 2016 and be open to membership by other countries, but the capital share of the BRICS cannot drop below 55 percent. The contingency currency pool will be held in the reserves of each BRICS country and can be shifted to another member to cushion balance-of-payments difficulties. This initiative gathered momentum after the reverse in the flows of cheap dollars that fueled a boom in emerging markets for a decade. "It will help contain the volatility faced by diverse economies as a result of the tapering of the United States' policy of monetary expansion," Brazilian President Dilma Rousseff said.

"It is a sign of the times, which demand reform of the IMF," she told reporters at the close of the summit.

China, holder of the world's largest foreign exchange reserves, will contribute the bulk of the contingency currency pool, or $41 billion. Brazil, India and Russia will chip in $18 billion each and South Africa $5 billion. If a need arises, China will be eligible to ask for half of its contribution, South Africa for double and the remaining countries the amount they put in. Negotiations over the headquarters and first presidency were reached at the eleventh hour due to differences between India and China. The impasse reflected the trouble Brazil, Russia, India, China and South Africa have had in reconciling stark economic and political differences that made it hard for the group to turn rhetoric into concrete action.

"We pulled it off 10 minutes before the end of the game. We reached a balanced package that is satisfactory to all," a Brazilian diplomat told Reuters.

Negotiations to create the bank dragged on for more than two years as Brazil and India fought China's attempts to get a bigger share in the lender than the others.

In the end, Brazil and India prevailed in keeping equal equity at its launch, but fears linger that China, the world's No. 2 economy, could try to assert greater influence over the bank to expand its political clout abroad. China, however, will not preside over the bank for two decades.

Facing efforts by leading Western nations to isolate Russia for annexing Crimea and stirring revolt in eastern Ukraine, the BRICS summit provided President Vladimir Putin with a welcome geopolitical platform to show he has friends elsewhere, economic powers seen as shaping the future of the world.

The BRICS abstained from criticizing Russia over the crisis in Ukraine and called instead for restraint by all actors so the conflict can be resolved peacefully.

The headline news is that this Tuesday in Fortaleza, northeast Brazil, the BRICS group of emerging powers (Brazil, Russia, India, China, South Africa) fights the (Neoliberal) World (Dis)Order via a new development bank and a reserve fund set up to offset financial crises.

The devil, of course, is in the details of how they'll do it.

It's been a long and winding road since Yekaterinburg in 2009, at their first summit, up to the BRICS's long-awaited counterpunch against the Bretton Woods consensus - the IMF and the World Bank - as well as the Japan-dominated (but largely responding to US priorities) Asian Development Bank (ADB).

The BRICS Development Bank - with an initial US$50 billion in capital - will be not only BRICS-oriented, but invest in infrastructure projects and sustainable development on a global scale. The model is the Brazilian BNDES, which supports Brazilian companies investing across Latin America. In a few years, it will reach a financing capacity of up to $350 billion. With extra funding especially from Beijing and Moscow, the new institution could leave the World Bank in the dust. Compare access to real capital savings to US government's printed green paper with no collateral.

And then there's the agreement establishing a $100 billion pool of reserve currencies - the Contingent Reserve Arrangement (CRA), described by Russian Finance Minister Anton Siluanov as "a kind of mini-IMF". That's a non-Washington consensus mechanism to counterpunch capital flight. For the pool, China will contribute with $41 billion, Brazil, India and Russia with $18 billion each, and South Africa with $5 billion.

The development bank should be headquartered in Shanghai - although Mumbai has forcefully tried to make its case (for an Indian take on the BRICS strategy, see here )

Way beyond economy and finance, this is essentially about geopolitics - as in emerging powers offering an alternative to the failed Washington consensus. Or, as consensus apologists say, the BRICS may be able to "alleviate challenges" they face from the "international financial system". The strategy also happens to be one of the key nodes of the progressively solidified China-Russia alliance, recently featured via the gas "deal of the century" and at the St. Petersburg economic forum.

Let's play geopolitical ball

Just as Brazil managed, against plenty of odds, to stage an unforgettable World Cup - the melting of the national team notwithstanding - Vladimir Putin and Xi Xinping now come to the neighborhood to play top class geopolitical ball.

The Kremlin views the bilateral relation with Brasilia as highly strategic. Putin not only watched the World Cup final in Rio; apart from Brazilian President Dilma Rousseff, he also met German chancellor Angela Merkel (they discussed Ukraine in detail). Yet arguably the key member of Putin's traveling party is Elvira Nabiulin, president of Russia's Central Bank; she is pressing in South America the concept that all negotiations with the BRICS should bypass the US dollar.

Putin's extremely powerful, symbolic meeting with Fidel Castro in Havana, as well as writing off $36 billion in Cuban debt could not have had a more meaningful impact all across Latin America. Compare it with the perennial embargo imposed by a vengeful Empire of Chaos.

In South America, Putin is meeting not only with Uruguay's President Pepe Mujica - discussing, among other items, the construction of a deepwater port - but also with Venezuela's Nicolas Maduro and Bolivia's Evo Morales.

Xi Jinping is also on tour, visiting, apart from Brazil, Argentina, Cuba and Venezuela. What Beijing is saying (and doing) complements Moscow; Latin America is viewed as highly strategic. That should translate into more Chinese investment and increased South-South integration.

This Russia-China commercial/diplomatic offensive fits the concerted push towards a multipolar world - side by side with political/economic South American leaders. Argentina is a sterling example. While Buenos Aires, already mired in recession, fights American vulture funds - the epitome of financial speculation - in New York courthouses, Putin and Xi come offering investment in everything from railways to the energy industry.

Russia's energy industry of course needs investment and technology from private Western multinationals, just as Made in China developed out of Western investment profiting from a cheap workforce. What the BRICS are trying to present to the Global South now is a choice; on one side, financial speculation, vulture funds and the hegemony of the Masters of the Universe; on the other side, productive capitalism - an alternative strategy of capitalist development compared to the Triad (US, EU, Japan).

Still, it will be a long way for the BRICS to project a productive model independent of the casino capitalism speculation "model", by the way still recovering from the massive 2007/2008 crisis (the financial bubble has not burst for good.)

One might view the BRICS's strategy as a sort of running, constructive critique of capitalism; how to purge the system from perennially financing the US fiscal deficit as well as a global militarization syndrome - related to the Orwellian/Panopticon complex - subordinated to Washington. As Argentine economist Julio Gambina put it, the key question is not being emergent, but independent.

In this piece, La Stampa's Claudio Gallo introduces what could be the defining issue of the times: how neoliberalism - ruling directly or indirectly most of the world - is producing a disastrous anthropological mutation that is plunging us all into global totalitarianism (while everyone swears by their "freedoms").

It's always instructive to come back to Argentina. Argentina is imprisoned by a chronic foreign debt crisis essentially unleashed by the IMF over 40 years ago - and now perpetuated by vulture funds. The BRICS bank and the reserve pool as an alternative to the IMF and World Bank offer the possibility for dozens of other nations to escape the Argentine plight. Not to mention the possibility that other emerging nations such as Indonesia, Malaysia, Iran and Turkey may soon contribute to both institutions.

No wonder the hegemonic Masters of the Universe gang is uneasy in their leather chairs. This Financial Times piece neatly summarizes the view from the City of London - a notorious casino capitalism paradise.

These are heady days in South America in more ways than one. Atlanticist hegemony will remain part of the picture, of course, but it's the BRICS's strategy that is pointing the way further on down the road. And still the multipolar wheel keeps rolling along.

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007), Red Zone Blues: a snapshot of Baghdad during the surge (Nimble Books, 2007), and Obama does Globalistan (Nimble Books, 2009).

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